When a company's own operators keep full remote control of a frac-sand handling system at all times — with the customer never able to touch the controls — is that a taxable equipment rental?

Plain-English summary

A company provides a modular frac-sand handling and storage system used during hydraulic fracturing, either as a stand-alone service or alongside fracking operations. Its own two operators control every function of the system — raising storage bins, positioning conveyor belts, and regulating discharge rates — entirely through handheld remote controllers or program logic controllers that stay in the operators' custody at all times. The customer never gets access to operate any part of the system. It asked whether its charges (separately stated for equipment, operators, and chemicals) are a taxable rental of the equipment.

The Comptroller ruled it's a nontaxable service, not a rental. The dispositive question is "operational control": a rental only happens when the customer takes possession by actually using, controlling, or operating the equipment. Since the provider's own operators exclusively run every function, and the customer can never power, operate, or control any component, no rental occurs — this is a service, and services not enumerated in § 151.0101 are nontaxable.

There's a twist, though: while the base service is sales-tax-free, Texas imposes a separate 2.42% oil well servicing tax under Chapter 191 whenever this kind of service is provided as part of an actual fracturing operation (i.e., when the taxpayer pumps chemicals down the well as part of fracturing). So the frac-sand system service is free of sales tax either way, but can trigger this different, narrower oil-and-gas-specific tax when bundled with fracturing itself.

What this means for you

Oilfield equipment/service providers using remote-controlled or operator-run equipment

If your own personnel maintain exclusive operational control of specialized equipment throughout the engagement — the customer never gets hands-on access — your charge is likely a nontaxable service rather than a taxable rental, regardless of how you itemize equipment vs. labor on the invoice. Compare this against ruling 202506016L (equipment rental where the customer's own staff ran the equipment) in this corpus for the opposite outcome on the same operational-control test.

Oil and gas fracturing service providers generally

Don't stop your tax analysis at "not subject to sales tax" — check Chapter 191's oil well servicing tax separately. A service can be exempt from sales tax and still owe the 2.42% oil well servicing tax if it's provided in connection with fracturing, acidizing, or similar oil-well servicing work.

Accountants and tax professionals

The operational-control analysis mirrors the Combs v. Chevron line and Comptroller's Decision Nos. 40,812 (2003) and 116,506 (2020), also cited in ruling 202506016L in this corpus — worth reading the two together as a matched pair showing the same legal test applied to opposite fact patterns. The oil well servicing tax trigger comes from § 191.081's definition of "oil well service" (including fracturing/acidizing) and § 191.082's tax imposition.

Common questions

Q: If I separately state charges for "equipment" and "operators" on my invoice, does that create a rental?
A: Not by itself — this ruling and its companion (202506016L) both look past invoice line-item structure to who actually has operational control of the equipment, not how the charge is itemized.

Q: If my nontaxable equipment service is used as part of fracturing, is it completely tax-free?
A: No — it can trigger the separate 2.42% oil well servicing tax under Chapter 191, which is different from sales tax and applies specifically when the service is part of fracturing/acidizing work at a well.

Q: Can another oilfield equipment provider rely on this ruling?
A: No. It binds the Comptroller only for the taxpayer and facts in the request. A provider whose customer's own staff can access or operate the equipment would likely be treated as making a taxable rental instead.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed); § 151.010 (Taxable Item); § 151.009 (Tangible Personal Property)
• Tex. Tax Code § 151.005 ("sale"/"purchase" — lease/rental); § 151.0101 (Taxable Services)
• Tex. Tax Code § 191.081 (oil well service, defined); § 191.082 (2.42% oil well servicing tax imposed)
• 34 Tex. Admin. Code § 3.294(a)(2) ("lease or rental" defined)

Cited prior guidance:

• Comptroller's Decision No. 40,812 (2003); No. 116,506 (2020); No. 117,602 (2022)
• STAR Accession No. 202312010M (Dec. 13, 2023) — operational control standard

Source

• Landing page (STAR search): https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202501013L

Original ruling text

Note: This document is also indexed as a Sales Tax document at STAR 202501013L.

January 17, 2025

RE: Private Letter Ruling No. 20230308101731

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated Sept. 16, 2022 and supplemental submissions dated March 8, 2023, Nov. 10, 2024 and Jan. 6, 2025, and conference calls held on Nov. 18, 2022 and Oct. 8, 2024. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance concerning whether charges for the ** System are subject to Texas sales or use tax.

Facts Presented

** (Taxpayer) is a Texas-based corporation that provides land completion and production services in the oil and gas industry. Specifically, Taxpayer provides a service involving the ** (System) which is a modular frac-sand handling and storage system used during hydraulic fracturing operations. Taxpayer’s employees control and operate all functions of the System on site the entire time the system is in operation through handheld remote controllers and/or program logic controllers.

Taxpayer may offer the System as a separate and stand-alone service, or in connection with fracking operations. Taxpayer invoices its service by separately stating charges for equipment, operators, and chemicals per Taxpayer’s sample invoice dated 9/13/24.

Taxpayer’s System includes a hydraulic power unit operated by a handheld remote. This unit is used to setup, dismantle, and position the frac-sand handling and storage system components. Specifically, the unit raises the frac storage bins into an incline position and moves and positions the conveyer belts used to offload the proppant.

Taxpayer has two operators who control and operate all functions of the System through handheld remote controllers and/or program logic controllers. The remote-control devices remain in the custody and control of Taxpayer’s operators at all times.

Taxpayer’s service includes the operators setting up the frac storage bins onsite and moving them into the desired incline position. Taxpayer’s operators control the conveyer belts during proppant offloading and subsequent filling of the frac storage bins. Once the System is set up, Taxpayer’s operators are responsible for regulating the speed of the conveyor belts to control the rate and proppant quantities discharged from the frac storage bins onto the conveyor belts to meet the fluid specifications required for fracking. At no point do Taxpayer’s customers have the ability to power, operate, or control any of the System components.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our responses and analysis.

Question: Are Taxpayer's charges for the System taxable?

Ruling: The charges for the System with operators are charges for a nontaxable service and are not subject to Texas sales or use tax. However, the service is subject to the oil well servicing tax under Chapter 191 when provided with a fracking service.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item). The term “tangible personal property” means “personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses….” Section 151.009 (Tangible Personal Property). In addition, only the specifically enumerated services listed in Section 151.0101 (Taxable Services) are taxable.

Section 151.005 (“Sale” or “Purchase”) defines a “sale,” in part, as the lease or rental of tangible personal property and the performance of a taxable service for consideration. Rule 3.294(a)(2) defines a “lease or rental” as “[a] transaction, by whatever name called, in which possession but not title to tangible personal property is transferred for a consideration.” A person must exercise operational control over lease property to take possession of that property. Operational control means using, controlling, or operating the taxable personal property. See Comptroller’s Decision No. 40,812 (2003), 116,506 (2020), and STAR Accession No. 202312010M (Dec. 13, 2023).

Taxpayer’s operators use remote controllers and/or program logic controllers to operate the System. At no time do Taxpayer’s customers have the ability or access to operate the System independently. Therefore, Taxpayer’s customers never have possession of the System as the customer never has operational control. As a result, a rental does not occur. Taxpayer instead provides a service which includes its operators and System. Taxpayer’s service is not included within the taxable services listed under Section 151.0101. Therefore, Taxpayer is providing a nontaxable service. Comptroller’s Decision Nos. 117,602 (2022) and STAR Accession No. 202312010M (December 13, 2023).

In addition, Taxpayer’s service are not included among the services subject to the 2.42 percent oil well servicing tax imposed under Chapter 191, (Miscellaneous Occupation Taxes), so long as the service is not provided as a part of a fracking service. See Sections 191.081 (Definition) and 191.082 (Tax Imposed).

The oil well servicing tax is imposed on each person who provides an oil well service using tools, instruments, or equipment that the person owns, furnishes, or controls or uses any chemical, electrical, or mechanical process in providing the service at any oil or gas well during and in connection with the drilling and completion, or reworking or reconditioning, of the well. Section 191.082(a)(1). An “oil well service” is defined, in part, as shooting, fracturing, or acidizing the sands or other formations of the earth in an oil or gas well. Section 191.081. Accordingly, Taxpayer’s services are subject to the oil well service tax when provided as part of a fracking service. For example, if Taxpayer provides its service along with chemicals and pumps them down a well as part of a fracturing service, the total amount is subject to the oil well servicing tax under Chapter 191.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20230308101731.

Sincerely,

Tax Policy Division–Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

1 Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.